MSA
Card Set Information
Author:
ED_6C3
ID:
270367
Filename:
MSA
Updated:
2014-04-12 20:00:20
Tags:
6C
Folders:
P&C-1 Calculation
Description:
6C
Show Answers:
Interpretation of regulatory tests results
most companies fail some ratios without being a sign of distress; view as a whole
ratios are not conclusive evidence of insolvency risk or lack thereof
MSA ratios are applied to all companies regardless of whether they are federally licensed
Calculating Net Income
Sum of Underwriting Income and Investment Income
= Net EP - expenses - net claims incurred + net investment income
Calculating Adjusted Equity
assets (bonds, debentures, shares, recoverables, receivables)
- liabilities (unpaid L&LAE, UEP, reserves required)
= GAAP Equity - capital required for catastrophes and unregistered reinsurance
= Previous year Equity + NI - capital required for cat and unregistered reinsurance
Capital ratio
MCT/BAAT: total capital (assets) available / required capital (margin); min = 150%
Return (UW + Inv) on…
Equity
: shareholder’s return; look for sustainability; min = 5.4%
Revenue
: GWP; income relative to revenue generating capacity min = 6.2%
Net EP
: core earning capacity of insurer; min = 4%
Assets after Tax
: (average); ability to generate income from asset base min = 2.6%
Equity ratios
Leverage Ratio
: (NWP + Net Liabilities) / Equity; max 500%
Net UW Leverage Ratio
: NWP / Equity; max 300%
Net Loss Reserves to Equity
: max = 200%
One-Year Development to Equity
: min = -10%
Reinsurance Recoverable to Equity
: measures dependence on reinsurance
AOCI to Equity (Accumulated other Comprehensive Income)
Year-by-year change
NWP / GWP / Equity
Other ratios
Investment Yield
: 2 (NII + OCI) / (Asset
_{b}
+ Asset
_{e}
- NII - OCI); min 6%
Two-Year Combined Ratio
Cash Flow from Operations to NWP
: min = 0%
Liabilities as % of Liquid Assets
: max 105%
Overall Diversification Score
: LOB diversification (1-10) x Geo diversification (1-10); well-diversified companies score 65 and higher